All posts tagged economy

The PM’s interview on the “Today” program was not a car crash. It wasn’t bad for him in the conventional political or media sense that he somehow gaffed — he didn’t. But it was still migraine-inducing radio.

Gordon Brown is a very skilled political operator. He has been doing these interviews for so many years that he does them almost on autopilot. Every time his interviewer asks a straightforward question he responds with a blocking move. By the end, John Humphrys must have felt that it would have been a more productive use of his time to repeatedly hit his head against the studio wall for twenty minutes. I would not have blamed him if he had run screaming from the room.

At the center of their exchanges, if you can call them that, was the notion of an end to boom-and-bust. Brown said mid-boom that he had delivered an economic miracle of permanent prosperity. Against this supposed guarantee, millions of Britons, many of the banks and the government spent and borrowed like there was no tomorrow. But there was a tomorrow — it’s here now. The end of boom-and-bust predictably went boom-banga-boom, and the resulting explosion will leave the national debt at £1.4 trillion.

Asked Humphrys: Did the PM have any regrets about having said that he had ended boom-and-bust?

It took 57 minutes – and goodness the time dragged – but in the end it wasn’t much of a budget at all.

It contained no significant changes on taxation (the tax rises were announced in the autumn) and virtually no detail on the spending cuts that must come whatever the election result. At the behest of Lord Mandelson, ministers are going to make a series of announcements this afternoon on “efficiency savings” in their departments. Perhaps at the same time they will unveil the identity of the tooth fairy.

It is also a dark day for cider-drinking millionaires who want to buy a house next year, with tax rises unveiled on booze made from apples and a rise in stamp duty from next April for houses worth more than £1 million.

But if you were expecting the Chancellor to make a bold bid to earn the plaudits of posterity, then you’ll have been disappointed. This wasn’t a 1970 Roy Jenkins country before party affair. There was a tiny bit more on deficit reduction (the black hole will be £7 billion smaller, the IFS has just calculated) but it’s a drop in the ocean of debt. The national debt is still on course to hit £1.3 trillion. The borrowing numbers for the years ahead are still horrendous, and even they were based on pretty heroic assumptions about growth. As late as 2014, if the country sticks to Darling’s course, the government thinks Britain will still be borrowing £74 billion that year — not much short of the entire annual education budget.

The rest? Various footling schemes and initiatives that I could list, but life is too short . Then there’s £2 billion for a green investment bank, as trailed. Want to get inefficient allocation of capital? Set up a government-owned and run investment bank and watch as the money pours out the door (but not back in).

There was one excellent Ashcroft gag from Darling: he talked of the treaty on tax he plans to conclude before the election with Belize. Cue Labour cheering, and embarrassed silence on the Tory benches.

Beyond that, this virtual non-event set the scene for the election to come and gives the PM some of his beloved dividing lines. Labour’s message is: Don’t-wreck-the-recovery/jobs’n'investment/nasty-rich-Tories. The Tories say: What-a-load-of-rubbish/Labour’s-putting-off-telling-the truth-until-after-the-election/kick-’em-out. Take your pick.

As Westminster busies itself with the fall-out from the Legg report and the scandal of MPs expenses, if you listen carefully you can hear a rumbling sound in the distance. It’s the markets.

There’s contagion as the impact of the Greek crisis spreads in deeply troubling ways. Today, Thursday, the cost of insuring Greek and Portuguese sovereign debt soared (there was panic buying in the sovereign Credit Default Swap market) and Spanish and Portuguese markets fell heavily. Bank stocks (remember those) were hit and even being one of the safest and most sober banks with a big increase in profits didn’t stop Santander’s shares tumbling more than 9%.

Incidentally, the response of the Greek trade unions to the austerity measures imposed by the European Commission on their stricken country is to strike, which is brilliant thinking. (How is disruption to production and wealth creation going to help an economy on its knees? Answer: It’s not going to.)

So, the markets are very worried about debt – something Britain has rather a lot of.

I wonder if senior MPs and ministers might forget their expenses for a moment and turn their attention to the implications of the spreading Greek/Eurozone crisis. It is likely to put debt, deficits and cutting both as quickly as feasible right back centre stage.

The British government doesn’t want to talk about this, for obvious reasons, and the Conservatives have decided rather strangely that now is the time for them to soft-pedal on immediate cuts to spending and the deficit. David Cameron said at Davos that any cuts in year one of a government he hopes to lead need not be “particularly excessive”. Really? Is he still sure that’s going to be enough for the markets? Time for a rethink perhaps?

This rare archive shot is said to show a meeting of the “Shadow Cabinet” in 2008. Have you spotted any of these people since? Photograph: Getty Images

With the latest poll putting Labour only seven points behind the Tories, what are the Cameroon Conservatives who hope to govern in around 100 days time saying to the country they aspire to lead? As an observer it is genuinely difficult to work out any coherent, clear message or figure out what their strategy is.

Take the deficit and the weird Tory gyrations of the last few days. For a while they were emphasizing deficit cutting (“I’ll cut the deficit, not the NHS”, as that not very effective poster of a few weeks ago put it) but now there seems to be a shift going on. David Cameron told an audience at Davos that cuts in year one of a potential Tory government need not be “particularly excessive”. They look like they fear the blame for a potential double-dip recession later this year and appear to have become, once again, believers in old-fashioned demand management.

As ever, their message after such an intervention is that it’s really no shift at all and in line with their previous statements. So they try to shift position whilst saying that they are not. The impression is of confusion at best, and chaos at worst.

But it’s more than that. I’ll write later, in my agenda column for the paper, on how Britain looks to be heading for a hung parliament. For now, here are a few observations of the battlefield.

Put the champagne back in the fridge, because Britain’s emergence from recession wasn’t exactly a triumphant affair. Today’s figures suggest the U.K. managed a pretty miserable 0.1% growth in the fourth quarter of last year, its first sign of growth since the the first quarter of 2008. Britain has emerged from the downturn well behind its competitors and trading partners.

This is despite claims by Gordon Brown that the country was uniquely well-placed to weather the recession and that it would even lead the world. But we have chosen a very odd way to lead the world out of recession, from the back behind everyone else rather than being out front. This is a novel definition of leadership.

Recovery, what there is of it, is not doing the government any good. Indeed, it has been said widely for months that the recession is coming to an end but the Tory lead is at 11 points in the most recent ICM poll for the Guardian.

Brown will have been desperate for something far more convincing than 0.1%. The narrative he wants for the election is that a strong recovery is under way and that voters shouldn’t gamble on the Tories, the party he says will ruin it. There’s sort of a recovery on the way — although it’s pretty anemic at only 0.1%, even after we’ve printed £200 billion and kept interest rates low for a long period, and it all looks deeply worrying still — is not really as powerful a message on the campaign trail.

It’s troublesome for the Tories, too. With the economy as fragile as it is, if they win they’ll be under pressure not to make their cuts to public spending too severe. There will be some commentators and economists saying that Britain has to get on with giant cuts quickly, but other competing voices will try to drown them out with warnings to avoid “calamitous cuts,” as Ken Clarke called them the other day.

Team Osborne clearly thinks about little else. Get the balance wrong and they could get the blame for any resulting double-dip recession. And today’s figures don’t make such decisions any easier. If they win they’ll have to choose, quickly, just the right amount of cutting.

Both had hoped to spend today and the months in the lead up to the election trumpeting, loudly, that the recession was over and claiming that full recovery is on the way. They were ready to say: “We’ve turned the corner, don’t let the Tories back in to ruin things”.

Instead these figures indicate that, in the third quarter, GDP shrunk by 0.4%, for the sixth quarter in a row, thus destroying the planned line of attack. Even if the figures were to be better early next year it would be much too late. One suspects that what is left of his reputation is about to be rubbished between now and Christmas by his own party, the opposition and the press.

Indeed, with his entire autumn fightback strategy depending on GDP recovering, I now find it extremely difficult to think what the Prime Minister has left to say.

Talking to various Labour advisors and ministers at the party’s recent conference, it was clear that their remaining hopes hung on their being able to claim that a recovery is underway (and on hoping weaknesses in the Tory team would trouble voters as polling day next year draws closer). Other erstwhile supporters of the PM I spoke to in Brighton were wondering whether their former hero had simply strayed into delusional territory by his pinning all on the economy bouncing back. They appear to have been right.

Of course, the government is scrambling together a response and ministers have to find something to say. It will be along the lines of this news proving how high public spending and quantitative easing by the BoE must continue to get the country through. They might have a go at questioning the figures, saying they aren’t in line with other indicators and that they will probably eventually be revised upwards. But that’s not going to do them much good, as they’ll know even as they utter the words.

For Brown the politics of this are simply dreadful. He can no longer say it used to be worse under the Tories, with this recession longer than they managed. And it is not inconceivable that it could be a trigger leading to his removal, with a cabinet in deepest despair and his backbenchers furious with him over MPs expenses.

The news also sets the seal on the Shakespearean nature of his time in public life: from the high of being supposedly “the greatest ever Chancellor” to the low of becoming the Prime Minister who presided over the longest recession on record. He will just hate it, be tortured by it, rage against his critics and curse fate. But while the wreckage of his hopes is something truly terrible for him to ponder, it is the country that is stuck with the practical consequences.